* Banks say they tightening foreclosure procedures
* Regulators tipped by news reports
* Bank regulator doesn't see widespread industry issue
* U.S. loan modification program still disappoints
* Lawmakers ask risk panel to weigh servicing spinoff
(Adds lawmaker letter, HAMP data update)
By Dave Clarke and Corbett B. Daly
WASHINGTON, Nov 18 Lawmakers hauled the top
U.S. mortgage lenders and their regulators to Capitol Hill on
Thursday to chastise them for widespread flaws in foreclosure
documents, but failed to extract any promises of fines or fresh
loan modification programs.
Major banks admitted sloppy documentation to a House of
Representatives' subcommittee but said they had taken steps to
tighten procedures and that the basis of their foreclosures has
Federal regulators said they learned of the problems from
news reports but are now actively reviewing banks' work and
plan to issue their findings in January.
It was the second congressional hearing this week into
revelations that lenders used "robo-signers" to sign hundreds
of foreclosure documents a day, without proper legal reviews.
Maxine Waters, who chairs the House Financial Services
housing subcommittee, repeatedly questioned whether regulators
had gone far enough in their penalties and oversight. "Why
should [the banks] take you seriously?" she asked.
Lawmakers threw most of their best jabs at regulators, who
testified first, while a panel with bank executives, who were
sworn in as witnesses by Waters, was sparsely attended.
Officials from the Federal Reserve and other bank
regulators were followed by executives from Bank of America
(BAC.N), JPMorgan Chase (JPM.N), Wells Fargo (WFC.N), Citigroup
(C.N), and Ally Financial.
The U.S. housing industry remains in a multi-year slump
that followed years of easy lending; a collapse that
precipitated the recent financial crisis and the worst economic
downturn since the 1930s.
Banks have now repossessed just over three million homes
through October since January of 2007, according to real estate
data firm RealtyTrac.
(For further foreclosure stories click: [ID:nN11106777] )
Mortgage servicing and foreclosure practices are being
investigated by both federal officials and all 50 state
attorneys general. [ID:nN17243398]
John Walsh, acting comptroller of the currency, said the
problems were isolated at specific institutions, rather than a
widespread industry issue. "I am not aware of a reason to
believe there is a systemic failing of the system," he said.
The paperwork fiasco has reignited public anger with banks
that received billions of dollars in taxpayer aid during the
Walsh said examiners were focused on monitoring banks'
mortgage modification programs, rather than keeping a close
watch on how they processed foreclosures.
Banking regulators warned in written testimony that banks
could face fines or criminal referrals and urged institutions
to maintain a capital cushion to cover any losses from the
mortgage documentation problems. [ID:nN17241375]
Some industry experts think banks face a greater financial
risk from investors demanding they repurchase mortgage-backed
securities, charging they misrepresented the underlying loans,
an issue often referred to as "putback risk."
In a letter released on Thursday, a group of House
Democrats asked the new Financial Stability Oversight Committee
to consider whether some financial companies should be required
to divest affiliates that service securitized mortgages.
Fed Governor Elizabeth Duke told the house hearing that
upcoming stress tests of the 19 largest U.S. banks would
include estimates of the putback liability.
In their testimony, the bankers stressed their firms do
everything possible to avoid foreclosure, and that troubled
borrowers are not rushed out of their homes.
Wells Fargo said evicted homeowners were, on average, 16
payments behind on their loans. Bank of America and JPMorgan
cited similar figures.
Lawmakers offered sharp criticism of the Obama
administration's main program to help prevent foreclosures.
"I think it's safe to say HAMP is not meeting its goal of
preventing foreclosures," Waters said, referring to the $50
billion Home Affordable Modification Program (HAMP) allocated
from the $700 billion bank rescue package.
The number of borrowers helped by HAMP continued to
dwindle, the Treasury Department said later on Thursday in
releasing its October update on the program. [ID:nN18120678]
Phyllis Caldwell, who runs Treasury's Homeownership
Preservation Office, defended HAMP at the hearing, saying it
had transformed the operations of mortgage servicers,
industry-speak for payment collectors.
Bank of America says it is ramping up modifications, but
becoming more reliant on its own programs. [ID:nN18277327]
Both lawmakers and witnesses described a mortgage servicing
and foreclosure process that is complicated, frustrating and
difficult for borrowers to understand.
"We have processes not built for the current environment.
It's been three years, we need to change the process," said
Thomas Marano, head of mortgage operations at Ally Financial.
There was little agreement at the hearing, however, about
what changes should be made.
Fresh data released on Thursday showed the U.S. housing
recovery is still uneven.
The mortgage delinquency rate declined last quarter amid
hints of improvement in the job market, but that bit of good
news was countered by headwinds from defaults and rising
foreclosure starts, the Mortgage Bankers Association said.
Top bank executives have said this week they want a
settlement soon of the states' probe but the attorneys general
have said a deal could be months away.
Any settlement is likely to require banks to make greater
efforts to keep borrowers in their homes.
Duke told the hearing she would support some sort of
mechanism like a nationwide fund for homeowners wrongly
foreclosed upon -- an idea being considered by the state
"I think would be very positive if there was a mechanism to
deal with these problems as they arise," Duke said.
(Reporting by Dave Clarke and Corbett B. Daly in Washington,
Dan Levine in San Francisco, Joe Rauch in Charlotte; Editing by